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The Difference Between a Bankruptcy Discharge and a Reaffirmation Agreement

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Tobias Licker, Esq.
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Those who are considering bankruptcy oftentimes have questions regarding the various terminologies – as it can be confusing. When going through the bankruptcy process, it is important to understand the difference between a bankruptcy discharge and a reaffirmation agreement
How Does a Bankruptcy Discharge Work?
Many people view bankruptcy because it discharges, or releases them from their debts. This discharge is a type of court order that allows people to have permanent relief for some or all of their debts. However, not all debts can be discharged. 

Debts that cannot be discharged include:
Some Taxes, including income taxes and property taxes if they are owed for specific time period
Alimony and child support
Certain student loans
Court fines
Criminal penalties
Personal injury as a result of driving under the influence of alcohol or drugs.
Property received as a result of fraud.
In addition, debts incurred after you file your bankruptcy are not able to be discharged. 
Before filing your bankruptcy petition, make sure that you have ALL of your debts listed, as these are in general the only debts allowed to be considered for discharge. If you forgot to include a debt that you owe, you might not be able to add it later.
Your discharge could also be denied if it discovered that you hid assets or did other fraudulent or dishonest things in conjunction with your bankruptcy filing.
You also must be sure that you are in a position to comply with the terms of the bankruptcy because once you file a Chapter 7 bankruptcy and are discharged from your debts, you are not allowed to file another Chapter 7 for eight more years.
In addition, some of your creditors may hold a secured claim. The bank that holds the mortgage on your house or the loan company that has a lien on an auto that you own are the most likely creditors to do so. You are not required to pay the amount of the secured claim if that debt has been discharged. However, the creditor is still allowed to repossess the property.
How Does A Reaffirmation Agreement Work? 
In certain situations, even though you have been discharged from having to pay a particular debt, you may still want to pay it. A good example is you car. You may need to keep your car in order to get to your job. Therefore, if you continue to pay your car loan, even if you have been discharged, it is less likely that the bank that holds the car loan will come and repossess your car. 
In order to do so, however, you need to work out an agreement with that particular creditor. In doing so, you will be required to sign a reaffirmation agreement with the court. This states that you promise to pay that debt.
Reaffirmation agreements:
Are not mandatory. Only you decide if you want to sign a reaffirmation agreement.
Should not place you into another hard financial situation.
Must only be signed if it benefits you in some way.
May be canceled at any given time prior to the time that the court issues your discharge or within the 60 days following the time that the agreement is filed with the court – whichever option allows you the most time.
Although you may sign a reaffirmation agreement and agree to pay the negotiated debt to the creditor, the court must still hold a hearing in order to approve the agreement. (This is done in cases where you are not represented by an attorney).
If, after you sign a reaffirmation agreement, you are still unable to pay the debt, your debt balance reverts back to what it was before you claimed bankruptcy, as if you had never claimed bankruptcy at all. In this case, your creditor has the right to come and repossess the item, as well as take legal action against you.
It is also important to note that bankruptcy trustees are not qualified to give you legal advice. Only an attorney who is experienced in the matter of bankruptcy is truly qualified to provide you with this information.

Category: Bankruptcy

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